Summary: Some schools, particularly proprietary for-profit trade schools whose profits come from student tuition, have enrolled students whose education is heavily financed by federally guaranteed student loans. Some of these schools are not overly concerned about their students' completing educational programs or the frequency of their students' defaulting on student loans. In 1994, the federal government paid $2.4 billion to make good its guarantee on these defaulted loans. In 1991, the Education Department began to bar postsecondary schools from federally guaranteed student loan programs if their students had exceptionally high loan default rates. Many schools, however, complained that the Department was using inaccurate information in setting default rates. Several schools filed administrative appeals or sued to block the Department's denial of their participation in federal loan programs. This report answers the following questions: How many schools have contested the Department's decisions, and what are the main points of their contention? To what extent have the schools' concerns been addressed by recent legislation and by the Department? What additional steps need to be taken to resolve problems with the default reduction initiative?
